Financial Reporting: Employee Compensation post employment and share-based

Question 1

Defined Benefit Pension Plan Interest Expense

Answer 1

Int exp = -Funded status at beginning of year * Discount rate

This is interest charged on the amount the company essentially ‘owes’ the pension fund.

Question 2

Remeasurement of pension plan assets

Answer 2

remeasurement =

Actuarial gains and losses on plan assets
+ Net return on Plan assets
Remeasurement

• Net return = actual returns - (beginning plan assets * Discount rate used to calculate interest expense)

Question 3

Component of Pension Costs Shown in OCI

Answer 3

• IFRS: Remeasurements

Question 4

Relationship between periodic pension cost and plan’s funded status

Answer 4

Periodic pension cost = Ending funded status - Employer Contributions - Beginning funded status

Question 5

Effect of a company’s excess pension plan contributions on cash flow statement

Answer 5

Excess contributions are an outflow from financing activities

Question 6

Pension Plan Retirement Benefits Paid During Year

Answer 6

Beginning Pension Obligation
+ Current and Past service costs
+ Interest expense (beg pension obligation X discount rate)
+ Increase due to actuarial loss
- Ending Pension Obligation
Pension Plan Retirement Benefits Paid During Year

Question 7

Pension Plan’s Funded Status

Answer 7

= PV of Benefit obligations at beginning of year - Plan assets at beginning of year

= PV of Benefit obligations at end of year - Plan assets at end of year

Question 8

Periodic Pension Expense on P&L

Answer 8

IFRS:
Service costs (past and current)
+ Net interest expense (net pension liability X discount rate)
Periodic Pension Expense on P&L

GAAP:
Current service costs
+ Interest expense on beginning pension obligation
- Expected Return on plan assets
Period Pension Expense on P&L (GAAP)

Question 9

Three Components of Periodic Pension Cost

Answer 9

1. Service Costs (changes in obligations because of employee service)
2. Net interest expense (net pension liability/asset X PV discount rate)
3. Remeasurement (difference between actual return on plan assets and net interest/income)